The Role of IMF Support in Crisis Prevention

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This paper examines the role of IMF-supported programs in crisis prevention; specifically, whether, conditional on an episode of intense market pressures, IMF financial support helps prevent a capital account crisis from developing and, if so, through what channels. In doing so, the paper distinguishes between the seal of approval inherent in IMF support and its financing, evaluates the interaction of IMF support with economic policies, and assesses whether IMF financing has a different impact on the likelihood of a crisis than other forms of liquidity. The main result is that IMF financing helps prevent crises through the liquidity provided (i.e., money matters). However, since the effect holds even after controlling for (gross) foreign exchange reserves, stronger policies and the seal of approval under an IMFsupported program must also play a role. Finally, the results suggest that IMF financing as a crisis prevention tool is most effective for an intermediate range of economic fundamentals.Thus, even though the paucity of data on crisis episodes has hampered
researchersa#39; efforts looking for empirical regularities, this paper proposes an
approach that identifies market pressure events and distinguishes among them
betweenanbsp;...

Title

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The Role of IMF Support in Crisis Prevention

Author

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Uma Ramakrishnan, Juan Zalduendo

Publisher

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International Monetary Fund - 2006-03-01

ISBN-13

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